Budget 2024 Trading Strategy and F&O Setup: Nifty positive but nearing top; hedge against volatility

Resistance is expected in the 24,700-24,750 zone, and a close above this level is expected to pave the way for 25,000. The previous resistance zone of 24,350 to 24,400 now serves as immediate support, with the next crucial support for the week at 24,170.

In terms of FII positioning, Foreign Institutional Investors (FIIs) hold a substantial net long futures index position of 327,000 contracts, marking an 18-session rise. FII data also reveals long positions in index options. The net position in index call options has risen to 27,504 contracts, while net short positions in index puts stand at 15,527 contracts, signaling a bullish outlook.

Put-Call options show 24,000-25,000 range for Nifty

According to Rahul Ghose, Founder of Hedged.in, “With the recent FII longs touching historical numbers and the Nifty passing 24,500, the top is within reach. The current OI concentration is at the 24,500 mark for both the July and August series, with the highest put writing at the 24,000 level and the highest call writing at the 25,000 level.”

“This places the markets in a balanced position with no clear indication of a buildup for the next big event later this month. If there is any indication at all, it shows a range between the 24,000 and 25,000 levels,” noted Ghose.

“The net index position of the DIIs currently is at the bottom end of the range, which also indicates that they expect the top to be within kissing distance. The Market Domination Indicator, a proprietary technology we use to forecast levels, pegs the maximum upside at 25,250,” added Ghose.

Given this outlook and the possibility of a further increase in implied volatility (IV) before the budget, Ghose recommends to plan a low-risk, hedged derivative strategy ahead of Budget.

Nifty Calendar Bi-directional Spread recommended by Ghose

- Buy Nifty August Futures
- Buy Nifty August-end expiry 24,500 PE (put option) at CMP (current market price)
- Sell Nifty 8 August expiry 25,000 CE (call option) at CMP
- Buy Nifty 8 August expiry 26,000 CE at CMP
- Sell Nifty September-end expiry 26,000 CE at CMP

Capital Required: Rs 69,000 Max Loss: Rs 3,000 Max Reward: Rs 5,000-8,000

Possible Modifications:

"In the event the Nifty breaks 24,000 on the downside with a bearish candle, we will roll the sold CE leg from 8 August expiry to the August-end expiry. We can also roll down the 26,000 CE to 25,500 and so on to gain extra credit if it moves further down," said Ghose.

Additionally, Ghose notes that it’s important to keep a gap between the futures and the first sold call to avoid trouble if the Nifty bounces back. Therefore, the suggested modification is only below 24,000.

The maximum reward for the trade is if the Nifty moves up slowly or if it moves down and then later moves up in August.

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